Stock Market Bubbles can Pop – Is anything different Today?

The public confidence crisis dejour – throughout history, financial markets have experienced a crowd mentality. The more excited a market becomes, the more individuals want to buy in, and the higher the prices are driven.

This social experience has occured throughout history and the cycles can be studied consistently. Professor G. Watson teaches business ethics and the role of the market economy. Regardless of whether we want to think about recent credit markets which have Broke, these scenarios are not unique. They have routinely occurred throughout time.

One of the most talked about historical markets that burst was Amsterdam’s Tuplip market. We can analyzie the Tulipmania of the tulip market that burst in 1637 as a popularly documented historical account of a economy that overheated.

Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulip bulbs were sold, competition intensified and their prices soared. One honestly rare variety was the Semper Augustus which reached values in excess of 1,000 florins per single bulb in 1623. This price exceeded more than six times the average annual income.

This industry mania continued – and 10 years later the price had increased another ten fold. At the market height, the value of a single Semper Augustus tulip bulb reached 10,000 florins – the equivalent of what it cost to buy a house in the middle of Amsterdam at the time.

With time the market peaked and there was no-one left who still wanted to buy these bulbs at such high prices. Within weeks, the market price crashed and many of people were left in financial ruin.

Throughout history – we have observed similar bubbles develop. As the crowd mentality continues to get more hyped, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In modern times of politically correct speech, are the contrarian voices that stand up for character, ethics, and honesty any different? Throughout time, these contrarian voices have been demeaned and ignored. But the market for products and the market for ideas has a way of eventually correcting itself from the heat of the crowd mentality – and those polar views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.